Sector Investing

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From Briefing.com: Close Dow +55.95 at 10823.72, S&P +7.00 at 1267.43, Nasdaq +4.05 at 2265.00: The year-end rally got back on track Tuesday, at least for blue chips, as a change to the FOMC policy statement's wording -- the removal of "policy accommodation" -- reignited widespread buying that closed eight of ten economic sectors in positive territory. As expected the central bank raised the fed funds rate 1/4% for the 13th consecutive time (to 4.25%). Nonetheless, the item of most interest to both stock and bond investors was the altered language in the accompanying policy directive which, while officials will continue to watch the economic data for policy direction, provides the opportunity for the Fed to stop raising rates if it so chooses. To wit, the rate-sensitive Financial sector provided the most upside leadership, benefiting from strength in Treasuries after the Fed said, "Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained." The 10-yr note closed up 5 ticks to yield 4.52%. Providing an extra source of relief was a turnaround in shares of Lehman Brothers (LEH 128.50 +0.33), which consolidated early on as investors had become so accustomed to the broker blowing out even the highest of Wall Street's expectations. While closing off session highs, Health Care was another influential leader to sport a gain of more than 1.0%, as a 26% dividend increase from Pfizer (PFE 22.31 +1.37) helped the drug maker bounce off yesterday's 52-week low. Consumer Staples was also strong, as upside Q2 (Dec) EPS and sales guidance from Procter & Gamble (PG 58.51 +1.60) played into Briefing.com's Market Weight rating on the sector, while a likely favorable court decision for Altria (MO 74.03 +1.52) also provided a source of sector support. Despite weakness in autos, after S&P downgraded General Motors' (GM 22.30 -0.75) debt last night, coupled with a disappointing Q3 report from Best Buy (BBY 43.94 -5.90) and the largest decline in Nov. retail sales (ex autos) since April 2004, Consumer Discretionary found some support from select retailers like Home Depot (HD 42.27 +0.95) and McDonald's (MCD 35.27 +0.80) -- a suggested holding in Briefing.com's portfolio for active investors. Technology, however, failed to hold onto afternoon gains and providing the biggest drag on the Nasdaq. Hardware lost ground after Hewlett-Packard (HPQ 29.07 -0.90) merely reaffirmed its FY06 guidance and Citigroup said IBM's (IBM 83.71 -2.25) Q4, FY06 and FY07 revenues are likely to be materially below consensus while a 1.2% slide in Microsoft (MSFT 27.13 -0.32) also weighed on the sector. Energy also lost ground as crude oil prices finishing near session lows overshadowed a 3.6% surge in natural gas, which closed at a new all-time high. The sector provided early leadership as confirmation of ConocoPhillips' (COP 58.20 -3.05) decision to buy Burlington Resources (BR 86.07 +3.57) for $35.6 bln placed a number of other gas companies on the radar screen as potential acquisition candidates but succumbed to late-day consolidation efforts. Separately, Oct business inventories rose just 0.3% as retail inventories (the only unknown) rose just 0.1%; however, the report was largely ignored ahead of the Fed and Thursday's influential CPI data. DJTA -0.1, DJUA +1.2, DOT -0.2, Nasdaq 100 +0.4, Russell 2000 -0.1, SOX +0.5, S&P Midcap 400 +0.1, XOI +0.3, NYSE Adv/Dec 1792/1506, Nasdaq Adv/Dec 1487/1575